SAs 2004 unfolded, analysts were watching
inventories, which measure the balance between supply and demand, for signs
of changing market tightness and thus price movements.

SInventories were low for the first half of
2004, indicating a tight market, but they were not lower than seen in 2000 or
2003.Furthermore, 2004 inventories
recovered towards year end before falling sharply again.Yet, 2004 prices rose higher than in either
of those prior years.

SWhat was different?

SOne difference is the shift in China’s
demand.China’s statistics lie
outside of OECD.Itis possible that some of that market
pressure was not reflected adequately in OECD inventories.

SThe second difference occurred on the
supply side, which is shown on the next slide.